In this month’s column, we discuss S.E.C. v. Rajaratnam,1 in which the U.S. Court of Appeals for the Second Circuit addressed the circumstances in which a party to a civil litigation can be compelled to disclose wiretapped conversations provided to that party by the government as part of a parallel criminal proceeding. This decision, written by Judge Gerard E. Lynch and joined by Judges Denny Chin and Reena Raggi, stems from the Galleon hedge fund insider trading case and highlights the potential issues facing litigants who are parties to simultaneous criminal and civil proceedings.
Background
In October 2009, the U.S. Attorney’s Office for the Southern District of New York unsealed criminal complaints alleging insider trading at several hedge funds, including Galleon Management, LP, a firm founded by the appellant Raj Rajaratnam, and New Castle Funds LLC, where the appellant Danielle Chiesi was a hedge fund manager. The same day as criminal complaints were unsealed, the Securities and Exchange Commission filed a civil complaint against Mr. Rajaratnam, Ms. Chiesi and others, charging them with insider trading and conspiracy based on the same conduct at issue in the criminal case. The criminal case against Mr. Rajaratnam and Ms. Chiesi was assigned to Judge Richard Holwell while a separate indictment charging similar crimes against other defendants, arising from the same investigation, was assigned to Judge Richard Sullivan. The civil SEC action was assigned to yet a third judge, Judge Jed Rakoff.
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